Agriculture Business Community Development

COVID-19 shows symbiotic relationships between formal and informal economies

By Charles Dhewa

Among other revelations, COVID-19 has shown the extent to which formal and informal African economies do not work in isolation but are more like Siamese twins. African economies are structured in such a way that there are no distinct supply chains that can be locked down without affecting entire ecosystems. For instance, agriculture is tightly interwoven with the non-food informal sector which consume more than 70% of the food, constituting the key demand side for agricultural commodities.

Given that less than 10% of the demand for food comes from the formal sector, opening that sector without opening the informal sector does not improve agricultural incomes.  One of the most important decisions in opening economic sector while others remain closed in order to contain the spread of COVID-19 should focus on stimulating the buying power. Suppressed buying power affects smallholder farmers more because there will be few buyers for the commodities, leading to enormous losses. That is why it is important to link the safety net system with food markets so that farmers earn income that will enable them to go back and grow more food.

The power of data and evidence
While mass African markets generate a lot of fluid data about the movement of food, African countries do not have institutions responsible for collecting and interpreting such data to inform policy decisions during pandemics like COVID-19 and other disasters. If such an institution existed it would show how much food is consumed by the transport sector, health sector, and other non-food sectors.

Careful analysis would reveal the implications of opening up one economic sector while keeping others closed. It would also show how opening the formal sector without opening the informal sector compromises demand because it cripples the buying power of the pro-poor majority, mostly those who depend on the informal sector that apparently drives the economy. Evidence would also show how social safety nets are not the solution on their own unless cash meant for social safety nets is plugged into the food supply chain so that poor people do not spend their little money looking for food. 

Technology should be playing a more meaningful role
Most African countries still lack technologies that can help them to collect or process information and data. By now, digital technologies should be producing maps for diseases like Malaria, Cholera, Foot and Mouth Disease, Fall Armyworm, and many other diseases that have made Africa their home. Such maps would provide wider sets of fluid data, demonstrating linkages between disasters or particular diseases with food systems. Unfortunately, African ministries of finance do not set aside specific budgets for gathering such important fluid data which remains fragmented in different government departments, local communities, and development organizations.

Technology-driven data and evidence can demonstrate why progressive farmers and traders should be interested in mastering trends that contribute to their growth pathways.  If you are a potato trader, it is not enough to know only about that particular commodity and competitors. Understanding the entire ecosystem is more fundamental because fruits like oranges and Nyii can have an indirect but very serious impact on potatoes. Appreciating the role of data and understanding one’s business performance is critical. Banks are realizing that a bank statement is no longer a sufficient instrument for evaluating a business’s performance especially given that companies that have not been operating for months due to COVID-19 have not been banking or generating income but virtually in limbo.

Importance of post-harvest policies
COVID-19 has also revealed the extent to which African countries need post-harvest policies as opposed to too much focus on inputs provision, mechanization, and irrigation issues at the expense of post-harvest issues. For a very long time, farmers and traders have been finding their own way around post-harvest challenges, developing their own economy with no policy guidance. Information and knowledge have remained in silos, for instance between farmers and traders who build a close relationship among themselves. 

Information asymmetry, barriers to market participation, and negligence of market infrastructure have remained the order of the day for decades. Policymakers have never questioned how food finds its way to urban markets from diverse farming areas.  Likewise, few people have been curious enough to find out how urban consumers get potatoes, carrots and other commodities. Very few policymakers know that to operate on full throttle, formal businesses depend on the informal economy for much-needed oxygen without which the whole formal economy cannot breathe. Most food and beverage formal companies would not be getting cash if they did not work closely with the informal sector in the form of tuck-shops and street vending of food. For instance, in Zimbabwe, a big sausage making cottage industry is an extension of the informal sector on which many people are depending for food and income.

About the author

Byron Adonis Mutingwende